To Own Or Associate: Consider DEBT and RISK!
This can be true depending on the circumstances. Below are some very basic factors to consider. It is not a comprehensive list, just food for thought.
Start-up vs. Acquisition
- What is the dentist to patient population ratio or demographics, such as in-migration, median income, insured vs. un-insured, etc.? As important as a demographic study is a competitive analysis. For example, will the new practice be located in an area where all the dentists are aggressively marketing and providing comprehensive dental services (AKA: super GP’s) or can the new dentist out-market or out-procedure their competitors?
- Is the practitioner experienced or a new grad? It is great to be located in an area where new patient influx will be high. However, one must factor in their diagnostic abilities and skill level, as well. Having multiple new patients come in the front door only to leave out the back door is not a profitable growth model.
- Does the owner understand how to grow or sustain a practice? If they don’t, have they budgeted for training in this area or the fees for a coach or consultant?
Consider the above in addition to:
- Is it profitable and is the new owner able to step in and replicate the production?
- Has appropriate due diligence taken place to confirm profitability (tax returns/P&L’s)?
The acquisitions I did that caused the greatest operational and growth challenges were the under-performing, under-procedured, under-marketed offices with high overhead and little profit which we purchased at a bargain. I suggest purchasing profitable offices in which you can replicate the production easily. The key here is not to pay a huge premium.
I have completed five acquisitions and four start-ups. Each mistake was painful and definitely cost me, delaying my growth and progress. My passion for business, great mentors, great partners and hustle allowed me to create profitable operations out of all but one of these. That’s a story for another time. (Let’s just say embezzlement and a dysfunctional partnership may have been a factor!)
The bottom line is this–practice ownership is not always the fastest path to paying off your debt.
Many studies suggest that it takes the average business start-up two-to-three years to become profitable. Dental practices are not immune, especially when you consider the capital requirements and unreliable cash flows. How do you think you can afford to pay off student loans quicker if payroll and office rent continue to drain your bank account?
You’re more likely to increase your debt when you own a practice. Operating lines of credit, equipment loans and office leases are all debt requirements for which you are on the hook.
If you are considering purchasing a practice, it may be in your best interest to work with a successful practice owner and take tons of notes before you take the plunge. In this process, you may decide you don’t want to do it, or on the other hand, that you have gained enough information to do it well. Either way, this will benefit you.
Another option is a strategic partnership. Partner One wears the business hat and Partner Two wears the dentist hat and they both live happily ever after. I recognize finding the right strategic partner is the key and I am not suggesting you get into bed with just anyone.